The payment system of India and the relevant legislation

Introduction

The development of a state depends upon the fiscal stableness of that state. The authorities or cardinal authorization of state formulates the strategies which can work expeditiously and adequately for the proper operation of the fiscal sector of a state. The fiscal sector of India has undergone drastic alteration in the last two decennaries. Payment plays a critical function in the fiscal sector and it is considered as indispensable portion in mundane minutess. A payment system is a mechanism that facilitates transportation of value between a remunerator and a donee by which the remunerator discharges the payment duties to the donee. [ 1 ] The payment and colony system serve as a anchor of fiscal system of a state. [ 2 ] Payment increases the GDP of the state therefore the payment system of state should be safe, secure, efficient and accessible.

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A safe and efficient payment and colony system is sine qua non for the proper operation of the fiscal system and it besides plays an of import function in the execution of pecuniary policy as they provide conduit through which policy signals are transmitted. [ 3 ] Generally the cardinal bank of any state works for the development of national payment system. The Reserve Bank of India ( RBI ) , like other cardinal Bankss, has been endeavouring to develop the payment and colony system in India on a safe, sound, secure and efficient footing. [ 4 ]

The Indian payment system is based on the paper- dealing but with the altering clip the state of affairs has changed. An alternate method of payment has been encouraged by modesty Bank of India which will do the procedure of banking system easier and convey safety, security and efficiency in the payment system. With the attempts of the Reserve Bank of India, the Indian banking sector has been come oning and seeking to follow and implement electronic payment to heighten the banking system. [ 5 ] The Reserve Bank of India has introduced Real Time Gross Settlement ( RTGS ) and National Electronic Fundss Transfer ( NEFT ) and National Electronic Clearing Services which facilitates client to follow electronic method of payment. It is confirmed by the study that usage of electronic method of payment has increased over a period of clip. The ground behind this is advancement in the engineering, increasing consciousness among the consumers and internet handiness.

The Reserve Bank of India has played polar function in the execution of electronic payment system. The payment and colony system works expeditiously and swimmingly if is maintained by a sound legal model. The major measure in this way is the passage of the Payment and Settlement Act of 2007. The payment and Settlement Act, 2007 was declared in 2007 but came into consequence on August 12, 2008. The Act authorizes Reserve Bank of India to modulate and oversee the payment system in India. In India, the payment and colony system is regulated by the Payment and Settlement Act of 2007.

History Of The Legislation

The Payment and Settlement bill of exchange Bill was prepared in 2002 under the chairmanship of Dr. RH Patil. The commission was formed by the Reserve Bank of India to analyze the assorted facets of the payment system related to the legal footing of the system. The footings of mention of the commission set up by the Reserve Bank of India were as follows: – [ 6 ]

  1. “To analyze the adequateness of legal footing for payment system ;
  2. To propose appropriate legislative alterations for ordinance of payment systems ;
  3. To propose an administrative set-up within the bank for administrating ordinance and supervising of payment systems ;
  4. Any other related matter.”[ 7 ]

Finally the R H Patil commission examines the Payment and Settlement Systems Bill prepared by the Task Force on legal issues of the National Payment Council to proffer advice on affairs associating to payment systems. [ 8 ]

The Payment and Settlement measure was composed in 2002 but it was introduced in the Parliament in 2006. The Act came into the declaration in December by having the acquiescence of the President and eventually it is enforced on August 12, 2008.

Payment And Settlement Act 2007 – Critical Study

The Act constitute of the eight chapters and thirty- eight subdivisions. Two ordinances have been notified by the Reserve Bank of India in 2008 under the Payment and Settlement Act. These ordinance are ; –

  1. Board for Regulation and Supervision of Payment and Settlement System Regulations 2008 ( BPSS ) .
  2. Payment and Settlement Systems Regulations ( 2008 ) . [ 9 ]

The BPSS Regulation screen:

  1. Composition of the Board ;
  2. Functions and powers of the Board ;
  3. Powers to be exercised on behalf of the Board ;
  4. Fundamental law of sub- commissions.

Colony System Regulations cover the undermentioned:

  1. Mandate of payment systems including entry of application for mandate for get downing or transporting on a payment systems, grant of mandate certifications, certification formats, etc. ;
  2. Payment instructions and finding of criterions ;
  3. Supplying of returns, paperss and other information ;
  4. Supplying of audited balance sheets, etc. [ 10 ]

Objective Behind The Payment And Settlement Act

The payment and colony system considered to be the anchor of the fiscal sector of our state. Gradually the fiscal sector has been come oning and has undergone alteration in the payment transportation from paper- based glade to the Real Time Gross Settlement. The electronic payment system is developed to facilitates non- hard currency manner of payment. There are several retail payment system operated in India like manual paper-based glade, Electronic Fund Transfer System, card-based system, MICR Clearing etc. The Reserve Bank of India operates and manages the paper- based check treating across India at four topographic points which includes Delhi, Mumbai, Chennai and Kolkata. In add-on to these topographic points it is managed by 12 centres which are operated by public sector under the supervising of the Reserve Bank of India. The other centres involved are the glade house, which are voluntary organic structures of bank who get involved expressly to for the intent of uncluttering payment system and following the direction given by the Reserve Bank of India.

The Electronic Transfer System is defined under the Payment and Settlement Act as “Electronic Fund Transfer ( EFT ) is a system whereby anyone who wants to do payment to another person/company, etc. , can near his bank and do hard currency payment or give instructions/authorization to reassign financess straight from his ain history to bank history of the receiver/beneficiary. Complete inside informations such as the receiving system ‘s name, bank history figure, account type ( nest eggs or current history ) , bank name, metropolis, subdivision name, etc. , should be furnished to the bank at the clip of bespeaking for such transportations so that the sum reaches the donees ‘ history right and faster. RBI is the service supplier for EFT.”[ 11 ]

The Real Time Gross Settlement System ( RTGS ) for the big – value payment system is operated by the Reserve Bank of India. The Card Based System is non operated by the Reserve Bank of India but it is indirectly operated and regulated by the card publishing bank.

Under the subdivision 58 ( 2 ) ( P ) of the Reserve Bank of India Act of 1934, the Central Board of Directors Of the Reserve Bank of India is authorized to fix ordinances for uncluttering house of Bankss. Therefore because of the above mentioned grounds and the polar function played by the Reserve Bank of India it was proposed that there should be some statute law which will authorise the Reserve Bank of India to move as a designating authorization and to confer with the undermentioned powers and maps ;

  1. It is the duty to RBI to look into the payment and colony system across the state including card companies, Uncluttering Corporation of India etc.
  2. The RBI should put down the process for mandate of payment system and besides for the annulment of the payment system.
  3. The RBI should give waies and guidelines to system suppliers.
  4. The RBI should keep operational and proficient criterions for payment system.
  5. To name for information and furnish returns and paperss from the service suppliers.
  6. To scrutinize and inspect the systems and premises of the system suppliers
  7. To do statute law for transporting out the proviso of the proposed statute law
  8. To enforce mulcts and punishments for non supplying information or paperss or wrongfully disclosing information, etc. [ 12 ]

Finally the Bill was passed by the Parliament seeking to accomplish above mentioned objects.

Designated Authority And Its Committee

Chapter 2 of the Act contains the subdivision 3 which trades with governments designated by this Act. Under this subdivision, the Payment and colony Act designates the Reserve Bank of India as the authorization for the supervising and ordinance of payment system. It besides provides for the fundamental law of the commission of the Central Board of Directors of the Reserve Bank of India.

Board For Regulation And Supervision Of Payment And Settlement System ( BPSS )

The board for ordinance and supervising of payment and colony system is constituted under the subdivision 3 ( 2 ) of the Act for the ordinance and supervising of the payment system. The board constituted shall dwell of the undermentioned members ;

  1. Governor, Reserve Bank, who shall be the president of the board ;
  2. Deputy Governors, Reserve Bank, out of whom the Deputy Governor who is in- charge of the Payment and Settlement System, shall be the Vice- President of the Board ;
  3. Not transcending three Directors from the Central Board of the Reserve Bank of India to be nominated by the governor, Reserve Bank. [ 13 ]

Powers and maps of the Board: –

  1. Board should put down the policies for the ordinance and supervising of the payment and colony system.
  2. Board should put down the criterions for bing every bit good as for the future payment and colony system.
  3. The mandate of payment and colony system.
  4. The board to make up one’s mind the standards for rank of payment and colony system.
  5. Board to analyze the regulation and ordinances framed under any legislative acts for giving way from clip to clip.
  6. Board should take major and effectual stairss for proper ordinance and supervising of the payment and colony system.
  7. The board should make the indispensable administering construction within the bing regulations and ordinances for effectual ordinance and supervising of the payment and colony system.

The BPSS meets on a regular basis and gives way for conveying in efficiency, safety and client convenience in the payment and colony systems. There are several countries in which BPSS has provided way such as ; readying of a model for payment through nomadic phones, extension of the legal power of magnetic ink character acknowledgment ( MICR ) , uncluttering house and cybernation of non- MICR glade houses, establishing the Indo- Nepal remittal system, doing usage of electronic manner of payment mandatary for big value dealing, doing all RTGS subdivisions NEFT enabled- while upgrading the NEFT system into a round- the – clock type remittal system, researching the feasibleness of of developing a domestic card to shoot competition in the market in a non- discriminatory mode, easing optimal usage of ATM’s by hard currency backdown. [ 14 ]

Mandate Of Payment System

Chapter 3 trades with the mandate of payment system. Section 4 of the Act provinces that no individual can operates the payment system without obtaining mandate from Reserve Bank of India. Under the Act the RBI is empowered to move as denominating authorization to regulates and oversee the payment system. Section 4 conveys that individual can operates the payment and colony system after obtaining mandate from the RBI.

The Reserve Bank of India can authorise a individual to run or modulate the bing houses or new glade houses of Bankss in order to hold a common retail glade house throughout the state. [ 15 ]

Under subdivision 5 of the Act individual who wants to run the payment system can use for mandate. The application for the mandate should be